Cross-posted at Nontrivial Pursuits
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Yes, rich people---or rather, rich Republicans---are really quite stupid.
One would think that rich people---of all people---would have an advanced understanding of how markets work, but alas, they do not. If rich people understood how markets work, they wouldn't get themselves all worked up about the idea of paying higher taxes. They'd just pay them and be happy about it.
And they would not have wasted all the billions of $$ they have thrown at the Republican Party over the decades just to get their tax obligations reduced.
If rich people understood markets, they would realize that it really doesn't matter how steeply progressive the income tax rate ends up being, for they would still have all the after-tax income they would require in order to obtain the scarcest goods/services/experiences that our economy is able to produce and bring to market, even if the top marginal rate were set at 99%.
If rich people understood markets, they would realize that if the government were to start taxing all income (including capital gains) at very steep rates, the prices of all the luxury goods/services/experiences produced in this country would simply drop to a level that they could afford. The same quantities of luxury goodies would be available for purchase as before, only they'd be available at much lower prices.
At any point in time, no matter what tax rate they are paying, the rich enjoy a claim upon the scarcest goods/services/experiences that the economy is able to produce. They get to own/experience those luxuries for one simple reason: they have more disposable dollars to throw at those markets than everybody else, so they are able to outbid all the other participants in the economy for them.
If all rich people are given more dollars to spend, like through a big tax cut, it does not magically cause the number of luxuries available in the economy to increase. If sellers of luxuries start to see more customers for the limited quantity of items they have to sell (perhaps customers who were priced out of the market before they got their big tax cut), they are going to raise the prices they charge to get the most dollars they can. They always seek to charge the highest prices they can, whatever the market will bear.
During the Great Depression of the 1930's, rich people felt much poorer than they did during the Roaring Twenties. Many of them had lost a lot of paper wealth and the top marginal tax rate on income had increased from 24% in 1929 (12.5% on cap. gains) to 63% and then 78% during the 1930's. But you know what? None of the beach front property or the mansions or yachts disappeared.
The economy didn't stop producing luxuries for the upper class; they still had the highest disposable incomes in the land. All the things that rich people used to spend their "excess" cash on was still available at lower prices. In real terms, the wealthy as a class lost nothing in terms of lost purchasing power as a consequence of being forced to pay a greater percentage of the government's bills.
And yet they complained and they continue to complain today. Every dollar they have "invested" in the Republican Party over the past few decades has been wasted, i.e., spent for no actual gain. If today's rich Americans had never received any of the tax cuts The Republicans have given them since Reagan, but had started paying higher rates instead, they would have still have the same purchasing power that they have today.
Increasing the disposable incomes of all rich people [in away that preserves their rankings withing the hierarchy of all disposable incomes] does nothing to improve the purchasing power of rich people, but it does set off an inflation event within those markets that serve the rich, and that includes of course the asset markets. And that brings up another of the ways in which rich Republicans are really, really stupid.
Stay tuned for Stupid Rich People (Part 3)